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Boardwalk Vampire

from the magazine

Boardwalk Vampire

Governed for decades by racketeers and corrupt politicians, Atlantic City blew its chances at revival. Autumn 2015
Economy, finance, and budgets
Politics and law

In the summer of 1908, a New York Times story described how the renowned vacation spot Atlantic City had nullified state laws restricting gambling and alcohol. Calling the city’s defiance “one of the most remarkable situations that ever existed in an Eastern state,” the Times quoted local officials saying that even if they tried to enforce the state rules, no jury of local citizens would indict or convict the offenders because most felt that Atlantic City’s mission was to “attend strictly to the entertainment of our visitors”—and that meant offering gambling and booze seven days a week and letting brothels operate openly. That summer wasn’t unusual: over the decades, officials in the New Jersey shore town would regularly tussle with state and federal investigators while operating what newspapers dubbed an “open city”—or, during Prohibition, a “wet city”—where the laws that other municipalities followed simply didn’t apply. Born from a physician’s dream to provide a place for healthy leisure, Atlantic City metamorphosed into a town “dedicated to the fast buck,” governed by dangerous racketeers and corrupt politicians, as Nelson Johnson, author of Boardwalk Empire: The Birth, High Times and Corruption of Atlantic City, puts it.

Though Atlantic City was touted as a family resort in its early days, much of its popularity even then stemmed from illegal entertainments such as gambling and prostitution. (GRANGER, NYC — ALL RIGHTS RESERVED)

Today, Atlantic City, with a year-round population of 40,000, teeters on the edge of bankruptcy and economic collapse. A long experiment with legalized gambling, launched in 1976, has failed to reenergize this once-iconic locale, which fell into seedy decline as tourists started turning away in the 1950s. The revival foundered largely because state officials—despite pledges to keep corrupt influences, including the Mafia, out of the casinos—failed to clean up the culture of sleaze, exploitation, and profligate spending that characterized Atlantic City’s government. Run for decades by political machines, the city squandered all the riches brought in by its four-decade near-monopoly on East Coast legal gaming. Now, as competition from other legal gambling locations intensifies, the prospects for another tourism-driven revival seem increasingly remote. Atlantic City wasn’t the first American municipality dragged down by two demons of urban decline—corrupt politicians and a one-industry economy—but it had a better shot at a comeback than many other struggling urban areas, and blew the chance. What’s next doesn’t look pretty.

In the early nineteenth century, South Jersey doctor Jonathan Pitney was captivated by a barrier island just off the coast, known as Further Island, where he’d sometimes row to treat patients. He eventually got the idea to develop the land into a health resort for the wealthy. Though critics derided his plan early on as “Pitney’s folly,” the doctor persuaded investors to finance the construction of a rail connection from Camden, on the banks of the Delaware River across from Philadelphia, to the island, soon known as Atlantic City. Guests could stay in a new 600-room hotel, also financed by Pitney’s backers. The budding resort experienced early woes, including the bankruptcy of the rail line, but its popularity grew during the second half of the nineteenth century. From just 3,000 visitors during the summer of 1858, tourism soared to 100,000 vacationers in 1872 and then exploded to 3 million just after the turn of the twentieth century. At its 1930s apex, Atlantic City welcomed 16 million tourists every summer.

Along the way, Atlantic City transformed into a raucous vacation spot, habituated by everyone from the rich and titled—the Duchess of Marlborough, Consuelo Vanderbilt, took a summer home there in 1903—to working-class families from Philadelphia and Camden. The resort boasted various family entertainments, including its famous boardwalk and a series of amusement piers jutting out into the Atlantic. But as early as the 1890s, Atlantic City—then ruled by political boss Commodore Kuehnle—also harbored “gambling parlors, speakeasies and brothels,” all operating “as if they were legal,” writes Johnson. “The only time the local police clamped down on anyone was if they were late with their payments” to the politicians, he observes.

For decades, when neither the federal government’s investigative arms nor New Jersey’s state government in Trenton had much muscle, Atlantic City officials quashed efforts to force the resort to operate lawfully. Jersey governor Franklin Fort appointed a public prosecutor to clean up the place in 1908, for example, but the push came to a thudding halt when a grand jury refused to indict any of the people brought before it.

Prohibition’s onset in 1920 gave Atlantic City a new opportunity to offer visitors something that they had trouble procuring elsewhere. After the federal government sent prohibition agents to the town in 1923, local officials tossed one of them in jail for three days and refused to let him communicate with Washington, prompting a Justice Department representative to declare Atlantic City “the most corrupt city in the country.” A grand jury later refused to return indictments against city leaders for their roles in the incident. Underscoring Atlantic City’s reputation for lawlessness and racketeering, mobster Lucky Luciano chose the resort for the first national convention of mob bosses. Held in 1929 and hosted by Atlantic City boss Enoch “Nucky” Johnson (the inspiration for “Nucky Thompson,” protagonist of the HBO series Boardwalk Empire), the meeting brought together notorious underworld figures like Al Capone, Frank Costello, and Meyer Lansky. Even when reformers did manage to throw a politician in jail, the convictions did little to diminish corruption. After the federal government convicted Johnson for tax evasion in 1941, the gangster’s political machine, which ran much of South Jersey, passed smoothly to state legislator Frank Farley, who controlled it until the early 1970s.

Atlantic City’s decline began at the hands of the U.S. Army during World War II. With millions of men going off to battle, the war disrupted the American tradition of the family vacation. The army, designating Atlantic City as a training center, helped fill hotel rooms, but its presence in town shut down vice for an extended period. The army’s postwar departure then left Atlantic City facing a drama- tically changed—and changing—world. The resort had benefited from its rail connections to New York City and Philadelphia, but the rise of the automobile made those connections less important, as Americans took to the roads to find new vacation destinations. At the same time, the war strengthened both the federal and state governments, which were more effective at preventing the city from reestablishing its outside-the-law practices. A 1951 Senate committee investigating organized crime held hearings on Atlantic City, with Wyoming senator Lester Hunt denouncing the city as “pretty rotten.”

As the feds clamped down and vacationers went elsewhere, jobs declined and residents moved away. Poverty rose, crime spiked, and blight spread. Such grim developments would have challenged any government, but Atlantic City’s culture of corruption made everything worse. Even as the city’s fortunes hit rock bottom in the early 1970s, federal prosecutors convicted seven high-ranking Atlantic City officials, including two mayors, of extortion and conspiracy for shaking down contractors. Meantime, the Philadelphia Inquirer reported that state investigators were accusing the city’s police leaders of conspiring with known criminals, tipping them off to investigations.

It was against this sleazy backdrop that Atlantic City leaders began their improbable but ultimately successful quest to legalize gambling in the city. Political boss Frank Farley—named in FBI recordings among local Mafiosi as “the man to see” in South Jersey—opened the campaign in 1970, getting a bill introduced in the Jersey legislature allowing a state referendum on gambling. The bill didn’t pass, but the idea gained support and a gambling question made it on to the New Jersey ballot in 1974. That measure went down to defeat after the state attorney general revealed that mob bosses were buying up Atlantic City property. Undeterred, Atlantic City officials tried again two years later, this time hiring a savvy political consultant who emphasized legalized gambling’s potential benefits to the state, such as extra tax revenues for senior-citizen programs. Powerful political figures, including Farley and Camden mayor Angelo Errichetti (later convicted in the Abscam case for trying to sell casino-licensing approvals), lobbied heavily for the measure. Also bolstering the cause were unrealistic projections of legalized gambling’s positive economic impact. One Wall Street analyst even declared, foolishly, that casinos were “the fastest and probably the cheapest form of urban renewal.” Despite opposition from church groups and many New Jersey newspaper editorial pages, the 1976 referendum won the day.

Jersey leaders announced purportedly tough casino-licensing requirements that would keep gambling clean. To show their earnestness, the officials denied a license to Clifford and Stuart Perlman, owners and operators of Caesars Palace in Las Vegas, because of the brothers’ long ties to mobsters. But corruption remained rampant within local government. In 1984, the feds indicted Michael Matthews, Atlantic City’s first post-legalization mayor, on charges of accepting bribes and of extortion. The FBI caught Matthews on tape bragging about his connections with big-time gangsters like Philadelphia boss Nicodemo “Little Nicky” Scarfo and his underboss Phil Leonetti. “Phil indicated . . . to me that we could all do well” with one particular deal, Matthews told an informant. “Greed got the better of me,” Matthews said at his sentencing. “That should be the logo of the whole town,” one businessman grumbled at the time. “Everybody’s out for himself and nobody cares about the city.”

Matthews’s mayoral successor, James Usry, wound up arrested five years later, charged with bribery, conspiracy, official misconduct, and accepting unlawful gifts—and prosecutors went after a dozen other city politicians during that period for similar crimes. Usry eventually pled guilty to campaign-contribution violations. More recently, in 2006 and 2007, as newly legal casinos in Pennsylvania were ending Atlantic City’s East Coast gambling monopoly, three city council members were convicted for taking bribes in exchange for city contracts; another council member was videotaped having sex with a prostitute in a local motel room. Then-mayor Bob Levy had to resign when the U.S. Department of Veteran Affairs revealed that he had defrauded the government of more than $25,000 by falsifying his service records to receive undeserved benefits. “Maybe . . . the corruption is so interwoven into the fabric of Atlantic City that it has become a constant, like the Boardwalk, the ocean and the slot machines,” wrote the Press of Atlantic City.

Into this crooked political culture flowed tens of millions of dollars of new public money from the casinos. By November 1981, with seven casinos—employing roughly 28,000 people—now open, Atlantic City’s annual property-tax revenues rose from a pre-referendum $21 million to nearly $69 million—a rapid increase unprecedented in New Jersey local government. The public schools’ take rose to nearly $14 million, up from $4.6 million. In a 1978 Police Magazine article titled (apparently without irony) “The Greening of Atlantic City,” the city’s police chief noted that his force would now be one of the highest-paid in the nation. And that’s still the case. A 2010 Star-Ledger report put the average annual police pay of an Atlantic City cop at a healthy $92,771.

Over time, others drank heavily from the money spigot. A 2010 report from the governor’s Advisory Commission on Gaming found that the Atlantic City government spent more than four times more per capita than other New Jersey cities and twice as much as rival tourism destinations like Orlando. A state comptroller’s audit uncovered numerous violations of Jersey statutes on excessive spending. Atlantic City’s city council, for instance, employed paid aides—an expense that no other comparable-size city in the state indulged in—at a cost of nearly $500,000 per year. “They have little to do and there are few controls over their time and attendance,” the audit pointed out of the aides. The audit also found that Atlantic City had violated IRS rules by allowing officials widespread use of city vehicles and had introduced generous policies letting government workers accumulate cash for unused sick time, costing the city $37 million.

While the casinos showered tax revenues on the public sector, local government did little with the wealth to enhance Atlantic City’s quality of life, which dissuaded new gambling-industry employees from settling within the city itself. The cops may be well paid and the police force well funded, for example, but Atlantic City has consistently recorded the second-highest crime rate in New Jersey, behind only scary Camden—a devastating situation for a tourist locale. A 2010 state report described Atlantic City as suffering from the perception that it was “unclean and unsafe” (a perception grounded in reality), with an “absence of a visible police presence or effective law enforcement on the Boardwalk.” A 2011 Press of Atlantic City story complained that the police department had “failed to take advantage of crime-fighting technology that is being used routinely elsewhere, and as a result is unable to electronically map crimes, analyze crime data and detect trends with its current computer systems.”

Nor has skyrocketing spending on Atlantic City’s public schools—they now spend an astonishing $26,000 per student—helped their performance, which is among New Jersey’s worst. Atlantic City’s high school ranks ahead of just 13 percent of Jersey’s secondary schools in overall academic achievement and beats only 31 percent in its graduation rate. Even compared with Jersey schools with a similar demographic mix of students, Atlantic City High ranks in the bottom third in the state in academic achievement.

For years, New Jersey leaders seemed unconcerned about the effect that Atlantic City’s corruption was having on redevelopment efforts, partly because Trenton was itself reaping a state tax windfall from legalized gambling. Responding to early criticisms that Atlantic City wasn’t changing its ways, Trenton did create a separate state-run agency to manage revival plans. The state’s major project, though, ended up being the construction of new housing to meet an anticipated surge of new residents—who never arrived. Atlantic City’s population hit its 66,000 peak in the 1930s, fell to an all-time low of 37,986 in 1990—long after gambling became legal—and is up only slightly since then.

Neither state nor city did much to encourage diversification of the local economy to make it less reliant on gambling. These days, Atlantic City banks nearly exclusively on day-trippers playing slots and other games—an extremely vulnerable economic foundation. The mismanaged tourist district has had a particularly rough time attracting well-heeled families. In a recent McKinsey study of tourist groups, “family vacationers”—who, on average, claimed a household income of more than $100,000—were the most hostile to the idea of spending time in Atlantic City. The biggest objection: a lack of outdoor activities and poor maintenance of the beach and surrounding environment. “It is seedy, not safe at all. There are prostitutes and drug dealers,” one survey participant said. Condé Nast Traveler readers have several times voted Atlantic City the worst vacation destination in the world and named the resort “the world’s most hostile city” in 1996.

Atlantic City has proved unable to develop a meaningful convention business, a trade that attracts longer-staying, wealthier customers. In 2014, the Atlantic City Convention Center hosted just three dozen events attended by 380,000 visitors—a shockingly low 28 percent occupancy rate, according to the Strategic Advisory Group. Reflecting this weakness, 90 percent of the money that casinos generate in Atlantic City comes from gambling. This contrasts strikingly with Las Vegas, which has made itself one of America’s top three convention towns, hosting 22,000 meetings and conventions that drew 5.1 million people in 2014. Vegas casinos have invested far more heavily in non-gambling entertainment, packing nearly twice the number of theater and showroom seats per 1,000 square feet of casino space than has Atlantic City, McKinsey reported. Casinos on the Las Vegas strip now earn just 37 percent of their revenue from gambling, the Center for Gaming Research at the University of Las Vegas found. The city has thus been able to insulate itself from growing competition from new state and Indian reservation casinos. Total revenues at Las Vegas strip casinos have risen by 3 percent since 2008, to $15 billion. Atlantic City’s major revenue source, gambling income, has plunged 40 percent, to just $2.7 billion, over that same period.

Atlantic City’s mismanagement left it extremely vulnerable to legalization of gambling elsewhere, a trend that gathered speed in 1987 with the Supreme Court’s ruling that American Indian tribes had the right to run gaming operations on reservations. By the mid-nineties, 25 states had legalized gaming, and two Connecticut tribes had established casinos—Foxwoods and Mohegan Sun—within a one-day drive of Atlantic City. The biggest blow, though, was the opening of casinos in Pennsylvania in 2006. In just eight years, 12 casinos opened their doors in the state, and they already generate more gambling revenue than their Atlantic City competitors. “Atlantic City had the advantage of the billions of dollars coming through, with gaming, to do things other than gaming in the city to fix it up, to diversify, to become a cool place to visit, to become a great place to live. We didn’t take advantage of that,” current mayor Don Guardian told the press at the end of the disastrous 2014 tourist season—which saw four casinos go out of business.

The city’s failures to revive based on gambling alone—even when it still had an East Coast monopoly—also illustrate the shortcomings of turning to the gaming industry as an economic-development tool. In 1976, gambling supporters argued that voters had a moral duty to legalize casinos in Atlantic City as a way of aiding the unemployed and destitute. But gambling hasn’t come close to curing the city’s economic and social ills. Legalized gaming, it turns out, isn’t a significant net addition to an economy; instead, it tends to draw dollars away from other local industries. When researchers for the 1999 National Gambling Impact Study visited Atlantic City, they discovered that hundreds of independent restaurants and bars had closed after gambling’s legalization. The Asbury Park Press, a shore community paper, noted in 2003: “Many of the merchants on Atlantic Avenue, for years the city’s main shopping strip, strongly championed the arrival of casinos. Most of those same merchants eventually went out of business.” Now, the casino industry itself is shrinking rapidly, declining by about one-third since its 1998 peak. The industry lost 8,000 jobs in 2014 alone. The greater Atlantic City area has one of the highest metropolitan unemployment rates in the country, at 10.1 percent—and within the city itself, unemployment stands at a truly dismal 15 percent. Atlantic City’s poverty rate is 34 percent, three times the national average.

Because Atlantic City’s budget has come to rely almost solely on casino-paid taxes, the city government is now insolvent and in crisis. Atlantic City’s property-tax base has plummeted 64 percent in the last five years. Counting property-tax refunds, the city has run nearly $300 million in accumulated deficits over the last five years, and used almost $250 million in borrowing to pay bills, according to a report issued earlier this year by the emergency manager whom Jersey governor Chris Christie has appointed to govern the city. In all, the report estimates, Atlantic City has upward of $500 million in liabilities that it can’t pay.

The budget disaster has made the free-spending city increasingly dependent on the state. Bailout legislation being debated in Trenton would direct yet more state aid Atlantic City’s way. The state plans to redirect some $60 million, originally earmarked for marketing to potential Atlantic City tourists, to help pay off some of the city’s debt—a necessary evil but one that won’t help the resort’s tourist industry.

While such moves may stabilize Atlantic City’s budget, revival will require more fundamental changes. Current state proposals revolve around the Las Vegas model—drawing more vacationing families and conventions to the city. But this strategy has no hope of succeeding unless Atlantic City tackles its more basic urban problems—above all, its high crime.

Fixing the police won’t be easy, given the department’s long history of corruption, lousy community relations, and feckless crime fighting. One alternative might be to follow a path that has worked well in nearby Camden, where the city, despairing of fixing its ineffectual and expensive police department after decades of trying, finally disbanded it in 2013 and turned control over to a new, bigger, more professional county-run force. The move relieved Camden of onerous union contracts, enabled the deployment of one-third more officers on the street, and brought upgraded crime-fighting technology and improved tactics. Camden violent crime fell significantly. Atlantic City mayor Guardian, a Republican who defeated Democratic incumbent Lorenzo Langford in a heavily Democratic city, has a mandate for change from fed-up residents, and he’s under pressure to adopt some version of Camden’s reforms.

The other big challenge remains Atlantic City’s schools. Even if the city can attract new business and stabilize its employment base, it won’t lure well-paid casino workers to live in town without an adequate educational system. Enormous resources from casino-tax revenues haven’t been enough to improve the schools, and now the system will have to make do with less, as tax collections dwindle. Residents currently have few educational alternatives—just one charter school, which recently opened with 150 students, currently operates in the city. It’s clear that Atlantic City needs more radical education reforms. One approach, currently under way in New Orleans, might be to emphasize school choice through the city: an all-charter system, where parents have the option to send their kids to any public school—not just one designated by their zip code—so that schools that don’t attract students can’t stay open.

Atlantic City today has one of the most bizarre urban landscapes in America: glittering casinos, lighting up the night sky, abut large tracts of desolate lots. Recently closed gambling houses like the Revel sit near broken city blocks where only a house or two remains standing. Former mayor Jim Whelan told the press a while back that the lesson of Atlantic City is that “gambling or other economic development . . . in and of itself is not a cure for social problems.” He could have added: or for bad government.

Atlantic City today has one of the most bizarre urban landscapes in America—lavish casinos loom over large abandoned lots. (JOHN MUNSON /THE STAR-LEDGER /THE IMAGE WORKS)

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